Page 196 - Microsoft Word - 00 ACCA F2 Prelims.docx
P. 196
Chapter 12
3.1 Linear regression
This performs a similar role to that of the high low method, but it uses mathematical
equations that examine all data in the series in order to improve accuracy.
It calculates a straight line relationship between the variables (y = a + bx) as follows:
n∑xy – ∑x∑y
b = ——————— a = y ̅ − b x ̅
2
n∑x – (∑x) 2
where n = number of observations
x and y are the arithmetic mean (or average) of x and y and are calculated as:
̅
̅
∑x ∑y
x ̅ = —— y ̅ = ——
n n
190
